Remaking Globalization

For Economist Joseph Stiglitz, It’s Time to Make Globalization Work for All

Joseph Stiglitz | Photo: Walter Henisch

Nobel Prize-winning economist Joseph Stiglitz is not fooled by all the empty rhetoric coming out of Washington. He knows that free trade is not really free; he knows that a rising tide does not lift all boats; he knows that nearly three billion of the world’s people struggle to survive on less than $2 a day and that even most Americans are worse off than they were six years ago.

He knows that globalization is not working.

But he also believes that it could.

“There is enough money around so that the winners of globalization could compensate the losers,” he told a Vienna audience of several hundred on Nov. 12. “It’s just that they haven’t.”

Instead, he said, globalization has been used as an excuse to weaken the protections set up to protect ordinary people, and taxes to shift the world’s wealth increasingly to the rich.

A professor of economics at Columbia University, Stiglitz was propelled into the public arena in 1993 as an advisor to the Clinton White House, then as chairman of the president’s Council of Economic Advisors, and finally as an economist at the World Bank.

He was dismayed by much of what he saw.

“In my time [in government], I saw that decisions were often made because of ideology and politics,” wrote Stiglitz in his preface to Globalization and its Discontents. “As a result many wrong-headed actions were taken, ones that did not solve the problem at hand, but that fit with the interests or beliefs of the people in power.”

This was in 2002, soon after the attacks on the World Trade Center. Less than two months earlier, protests against the G8 Summit in Genoa, Italy, had brought some 300,000 people to the streets and a 23-year-old protestor named Carlo Giuliani had been shot dead during clashes with police.

Serious resistance global capitalism was no longer just a reflection of the disorder or envy of developing economies, but a growing sense of outrage at home in the wealthy nations of Europe, in the US, where many sensed that things had gone seriously awry.

“The barbarous attacks of September 11, 2001, have brought home with great force that we all share a single planet,” Stiglitz went on. “We are a global community, and like all communities have to follow some rules so that we can live together. These rules must be – and must be seen to be – fair and just.”

Now, in late 2006, after so many years of divisive ideological government in the US, the politics of fear and the relentless concentration of power, the problem had only intensified.

I set down my well-thumbed copy of Globalization and its Discontents just as Austria’s new chancellor-in-waiting Alfred Gusenbauer passed my shoulder, rosy cheeked and beaming, and made his way up the steps to the podium.

When Joseph Stiglitz comes to town, the intellectual red carpet rolls out to meet him.

“Among the recipients of the Nobel prize, not all are so good natured and uncomplicated,” Gusenbauer said. “Joe Stiglitz tells us what we can do differently and better in the world, globalization not as a catastrophe but also not as a miracle, the opportunities and also the dangers.”

Stiglitz likes coming to Austria, where unlike America, he said as he took the mic, “it isn’t an embarrassment to talk about social justice or social solidarity, and where science-based, research-based policy making is the norm.”

Tonight’s talk at the Old Stock Exchange, sponsored by the Renner Institute, was timed with the release of the German edition of Stiglitz’s new book, published under what he considers the deceptively positive title, Die Chancen der Globalizierung.

The original title, Making Globalization Work, has a rather different feel. “It implies that globalization isn’t working very well,” he said. “We could make it work, if we changed the way we managed it.

“But so far, it has not worked, because we have placed certain values over other values, profits over environment, efficiency over employment.” Globalization is not inevitable, he suggested, but nor is its failure. Globalization is a result of a series of specific political and economic choices. In understanding these choices, we can begin to understand why this has happened.

The origins of our current troubles, says Stiglitz can be traced to the 1980s and the fundamental shift in thinking at the International Monetary Fund. The IMF is the regulatory body created, along with the World Bank, at the UN Bretton Woods Conference in 1944 and charged with preventing another global depression.

Founded on Keynesian principles of using a government’s tools of monetary and fiscal policy to expand the way out of a down turn, the IMF changed radically in the Reagan-Thatcher years of the 1980s to become, in Stiglitz’s view, dogmatic missionaries of free-market capitalism.

So instead of using government spending to create jobs, reduce taxes and lower interest rates to stimulate a faltering economy, the IMF has increasingly asked for “shock therapy” programs of draconian belt tightening intended to prevent inflation, policies like cutting deficits, raising taxes or interest rates that lead to an often crippling contraction of the economy.

Stiglitz’s list of globalization victims is long: Mexico, where following the North American Free Trade Agreement, the price of corn fell by 50%; Brazil, where growth in the 1990s was half of what it was in the 50s, 60s and 70s; Kenya where market liberalization without adequate legal and regulatory structures led to 14 banking failures in 1993 and 1994 alone.

“Moldova, like much of Eastern Europe, was told that moving to a market economy would increase their income. All it did was increase poverty,” Stiglitz said, “It has been a process of de-development,” with a 70% drop in GDP and a full three-quarters of their budget going to service a foreign debt that had increased six fold.

“Why do so many countries have debts they cannot afford to pay?” he challenged. “When you see a pattern like that, you know there is something systematically wrong.”

The solutions are clear, but far from simple.

“Economic globalization has outstripped political globalization,” Stiglitz said. “We need to act collectively. But we don’t have the political institutions or the mindset to do it.”

In trade negotiations, a fulcrum for the disequilibrium in the world economy, he sees a continuing hypocrisy in the West’s understanding of its domestic vs. international objectives, and here, we heard a hint of the depth of his cynicism, or perhaps disappointment, from his time in government.

“Domestically, we say it is important to be efficient, but also fair. Internationally, efficiency is all that matters,” he said. “We say, ‘Come back with the best agreement you can for the US,’ when what we really mean is, ‘for our biggest campaign contributors.’ ”

Yet even in the US, globalization has hardly delivered on its promises. While the knowledge gap has narrowed enormously, “wages at the bottom have been pushed down to 30% below what they were 30 years ago,” Stiglitz said, with wages dropping sharply again just in the last six years under the Bush administration.

An increase in productivity at the bottom would be needed to justify bringing them back, he said.

It was a full picture, including the key distortions of trade policy and the fights over intellectual property – one issue for cultural goods, another for technology, and yet another for pharmaceuticals.

Answers to questions covered ecological dumping and the need for a level playing field, the importance of basic research, the limits of outsourcing, and the impact of the end of the Cold War.

I wondered why it was necessary to tie higher wages to an increase in productivity. Wages in most sectors are arbitrary, with ideals of equal pay for equal work unrealized. But seated at the side, front, my hand never got seen until too late.

Still, I was near the stage, and so quickly got in line for the book signing, among all the beautiful hard covers, holding out my scruffy paperback of Globalization and its Discontents. No problem. Stiglitz leafed to title page and dashed off his name. And I slipped in my question.

He stopped, and looked up, interested. “Because that’s probably the simplest,” he said immediately, and then started thinking out loud: “Of course there are other options, but they would be more difficult politically…”

But the line was long. I thanked him and slipped away.  The demonstrations in France were further evidence that this was not just a Third World problem, he had said.  “The young French workers are saying, ‘You told us we’d be better off under globalization. But how do lower wages and weaker job protection make us better off?’”

The free-market economists’ answer – that things will even out eventually – is no answer at all to real people living real lives, said Stiglitz, “and as Keynes pointed out so long ago, ‘In the long run, we’re all dead.’”

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